Question

Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total...

Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity

Total Revenue

Total Cost

0

$0

$5

1

$8

$9

2

$16

$14

3

$24

$20

4

$32

$27

5

$40

$35

6

$48

$44

7

$56

$54

8

$64

$65

9

$72

$72

If the firm’s marginal cost is $11, it should

Question 10 options:

Increase production to maximize profit

Increase the price of the product to maximize profit

Advertise to attract additional buyers to maximize profit

Reduce production to increase profit

Homework Answers

Answer #1

option 4

Reduce production to increase profit

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p


TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
The firm produces at MR=MC or the closet lower MC

Quantity Total Revenue Total Cost MR MC Profit
0 0 5 -5
1 8 9 8 4 -1
2 16 14 8 5 2
3 24 20 8 6 4
4 32 27 8 7 5
5 40 35 8 8 5
6 48 44 8 9 4
7 56 54 8 10 2
8 64 65 8 11 -1
9 72 72 8 7 0

the firm maximizes profit at MC=MR

and the MR=8 and the MC at the production level is 11 so the firm should decrease the output to produce at MR=MC and maximize profit

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